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Goldman Sachs has started seeing coal stocks as a Buy. But they are being very picky in their selections.

In a note published Friday, Goldman analysts Neil Mehta and Vinit Joshi issued a mix of outlooks for the batter coal sector, among them Buy ratings on CONSOL Energy (CNX) and SunCoke Energy (SXC) and a Sell on Arch Coal (ACI).

Plagued by falling commodity prices, weak volumes and government regulations, few industries have suffered the kind of punishment that coal stocks have seen in 2013. Shares have risen since July on improving confidence. Still, at $19.22, the Market Vectors Coal ETF (KOL) sits almost 24% below where it traded on Dec. 31.

But Mehta and Joshi are “neutral” on the industry, and suggest that investors avoid pure play coal name. They do suggest looking for “sum-of-the-parts” stories and names with strong balance sheets. They write:

The coal sector continues to face challenges including coal plant retirements, high net debt levels and commodity prices below historical averages. But we see some reasons for optimism, including the bottoming of met coal prices, YTD underperformance versus the S&P500 of 44% and some strong company-specific ideas, namely CNX and SXC.

As for specific stocks, the Goldman analysts issued five ratings changes:

Upgrade CONSOL Energy to Buy given strong production growth at its E&P segment, improving cash flow from the coal business and potential for asset sales/restructuring to help realize its SOTP value.

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